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NORTH Korea appears to be gearing up for a major military exercise amid tensions over an expected missile test and South Korea's pullout from the joint Kaesong industrial complex.

Preparations are under way near the North's western port of Nampo for a combined live-fire drill involving artillery units and air force jets, the South's Yonhap news agency said, citing a Seoul government source.

"It appears that the scale of the drill will be quite big," the unnamed official was quoted as saying, voicing fears of military provocations against the South or a missile test by Pyongyang during the exercise.

A North Korean artillery attack on a South Korean island in November 2010 killed four people. Seoul also holds Pyongyang responsible for the sinking of one of its naval vessels with the loss of 46 sailors the same year.

Another Seoul military official quoted by Yonhap said the communist North may try to "fan military tension" after South Korea pulls out all its remaining workers from a jointly run factory park.

Kaesong - built in 2004 just north of the border as a rare symbol of inter-Korea cooperation and a valued source of hard currency for the impoverished North - has fallen victim to the growing cross-border tensions.

Seoul on Friday announced that it would withdraw all of its remaining workers from the site after Pyongyang rejected its ultimatum to join formal negotiations on restarting the stalled operations.

Some workers have already returned and the remaining 50 are expected to leave tomorrow, a move that experts say could lead to the permanent closure of the complex, seen as a bellwether of stability on the Korean peninsula.

About 175 South Korean workers were impossible to miss as they arrived at the border with their belongings tied all over their cars as they were travelling back to Seoul.

A South Korean minister in charge of inter-Korean relations said he was concerned for the workers who did not have a lot of access to food and medicine.

Pyongyang's powerful National Defence Commission earlier said Seoul's demand for talks was deceptive.

They added that the US-South Korean military drills and the spreading of anti-North Korea information revealed South Korea was not serious about having talks.